Land acquistion has been a contentious issue in India. Above, a new township under construction in Kolkata, West Bengal, in November 2010.

Jairam Ramesh suggests in the bill an overhaul of the rehabilitation and resettlement policy, a hot button issue that has stalled several projects in India, including the development of a $12 billion steel plant in Orissa by Korean giant Posco and the expansion of a bauxite mine by Vedanta Resources, which is owned by Indian mogul Anil Agarwal.

In an opening statement of the draft, Mr. Ramesh says, “Land markets in India are imperfect. There is asymmetry of power (and information) between those wanting to acquire the land and those whose lands are being acquired.”

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So far, Indian law kept rehabilitation a separate exercise from land acquisition. Mr. Ramesh wants to change that with this bill. “R&R must always, in each instance, necessarily follow upon acquisition of land,” he says in the draft. “Not combining the two – R&R and land acquisition – within one law, risks neglect of R&R. This has, indeed, been the experience thus far.”

While this is a bold move by the ministry, it’s far from being a done deal. The draft is up for comments and feedback until the end of next month. Even to get to this point has been a long way in the making. A key sticking point had been if the government should acquire land for private developers, or not.

The Supreme Court of India too stepped into the debate last month when it lashed out at the Uttar Pradesh state government for acquiring land for a project in the New Delhi suburb of Noida by invoking an emergency clause that snuffs out the ability of farmers to raise objections over inadequate compensation. Mr. Ramesh resolves that dilemma in this draft as it states that the government will not get involved in private land buys for private purpose.

It’s common for negotiations on land acquisition to stall on what is fair compensation. Mr. Ramesh wants to remove all doubts on that aspect. He expects companies to pay at least two times the market price in urban areas and at least six times in rural areas.

In addition, companies will have to pay a subsistence allowance of 3000 rupees per month per family for 12 months; 2000 rupees per month per family as annuity for 20 years, with an appropriate index for inflation. The draft also requires a provision of housing if a house is lost – a constructed house of plinth area of 150 square meters in rural areas or 50 square meters plinth area in urban area. Where land is acquired for urbanization, 20% of the developed land will be reserved and offered to land owners, in proportion to their land acquired.

On every transfer of land within 10 years of the date of acquiring it, 20% of the appreciated value shall be shared with the original owner. The draft also mandates employment for one member per affected family or 200,000 rupees if employment is not offered.

And wherever families are resettled, that area should include schools and playgrounds, health centers, roads and electric connections, assured sources of safe drinking water for each family.

Most importantly, for any land sale to happen, at least 80% of the affected families will have to give their consent.

Land acquisition has been a major stumbling block to industrial development in India; this draft, if it ever becomes law, could jumpstart industrialization, which economists say is needed to maintain India’s growth, which is now heavily skewed toward services while agriculture continues to employ the bulk of Indians.

It also may silence one of the great tropes about India: that democracy stands in the way of development. It’s a reason India boosters use to explain why China is so far ahead in manufacturing and infrastructure.

If this new law is passed, and land acquisition becomes a less contentious issue, it will show that it is not democracy but social equity that has stood in the way of India’s progress.

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India Real Time offers analysis and insights into the broad range of developments in business, markets, the economy, politics, culture, sports, and entertainment that take place every single day in the world’s largest democracy. Regular posts from Wall Street Journal and Dow Jones Newswires reporters around the country provide a unique take on the main stories in the news, shed light on what else mattered and why, and give global readers a snapshot of what Indians have been talking about all week. You can contact the editors at indiarealtime(at)wsj(dot)com.